FOX FACTORY HOLDING CORP 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures We maintain "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management, under the direction and with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 30, 2022. Based on the evaluation of our disclosure controls and procedures as of December 30, 2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level. Management’s Report on Internal Control Over Financial Reporting The Management’s Report on Internal Control Over Financial Reporting is contained in Part IV. Management's Report on Internal Control Over Financial Reporting of this Annual Report on Form 10-K and is incorporated herein by reference. Attestation Report of Independent Registered Public Accounting Firm Grant Thornton, LLP, the independent registered public accounting firm that audited the Company’s consolidated financial statements, has issued an attestation report on the Company’s internal control over financial reporting. A report of independent registered public accounting firm is contained in Part IV. Report of Independent Registered Public Accounting Firm of this Annual Report on Form 10-K. Changes in Internal Control over Financial Reporting There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended December 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Inherent Limitations on Effectiveness of Controls Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. ITEM 9B. OTHER INFORMATION Not applicable. 55 Table of Contents ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information required by this Item regarding our directors and executive officers is incorporated by reference to the sections of our proxy statement to be filed with the SEC in connection with our 2023 Annual Meeting of Stockholders (the "Proxy Statement") entitled "Election of Class I Directors" and "Corporate Governance." Information required by this Item regarding our corporate governance, including our audit committee and code of ethics, is incorporated by reference to the sections of the Proxy Statement entitled "Corporate Governance" and "The Board of Directors." Information required by this Item regarding compliance with Section 16(a) of the Exchange Act required by this Item is incorporated by reference to the section of the Proxy Statement entitled "Delinquent Section 16(a) Reports." ITEM 11. EXECUTIVE COMPENSATION Information required by this item regarding executive compensation is incorporated by reference to the information set forth under the captions "Executive Compensation," "Director Compensation" and "Corporate Governance" in our Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Information regarding security ownership of certain beneficial owners and management is incorporated by reference to the section of the Proxy Statement entitled "Security Ownership of Certain Beneficial Owners and Management." Information required by this item regarding securities authorized for issuance under our equity compensation plans is incorporated by reference to the information set forth under the caption "Executive Compensation" in our Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Information required by this Item is incorporated by reference to the section of the Proxy Statement entitled "Certain Relationships and Related Transactions and Director Independence." ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Information required by this Item is incorporated by reference to the section of the Proxy Statement entitled "Ratification of Appointment of Independent Registered Public Accounting Firm." 56 Table of Contents PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) Financial Statements Management’s Report on Internal Control Over Financial Reporting 63 Reports of Independent Registered Public Accounting Firm (PCAOB ID Number: 248 ) 64 Consolidated Balance Sheets as of December 30, 2022 and December 31, 2021 68 Consolidated Statements of Income for the years ended December 30, 2022, December 31, 2021 and January 1, 2021 69 Consolidated Statements of Comprehensive Income for the years ended December 30, 2022, December 31, 2021 and January 1, 2021 70 Consolidated Statements of Stockholders' Equity and Redeemable Non-controlling Interest for the years ended December 30, 2022, December 31, 2021 and January 1, 2021 71 Consolidated Statements of Cash Flows for the years ended December 30, 2022, December 31, 2021 and January 1, 2021 72 Notes to Consolidated Financial Statements 74 (b) Exhibits See Index to Exhibits 58 ITEM 16. FORM 10-K SUMMARY None. 57 Table of Contents Index to Exhibits Incorporated by Reference Exhibit Number Exhibit Description Form File No. Filing Date Filed or Furnished Herewith 3.1 Amended and Restated Certificate of Incorporation 10-Q 001-36040 September 19, 2013 3.2 Amended and Restated Bylaws 10-Q 001-36040 September 19, 2013 4.1 Form of Common Stock Certificate S-1 333-189841 July 8, 2013 4.2 Form of Indenture S-3 333-203146 March 31, 2015 4.3 Description of Securities 10-K 001-36040 March 3, 2020 10.1† Employment Agreement, dated May 1, 2018, by and between Fox Factory Holding Corp. and Chris Tutton 10-K 001-36040 February 26, 2019 10.2† Employment Agreement, dated August 29, 2018, by and between Fox Factory Holding Corp. and Michael C. Dennison 10-K 001-36040 February 26, 2019 10.3† Amended and Restated Employment Agreement, dated June 26, 2019, by and between Fox Factory Holding Corp. and Michael C. Dennison 8-K 001-36040 July 1, 2019 10.4† Employment Agreement, by and between Fox Factory Holding Corp. and Scott Humphrey, dated August 4, 2020. 8-K 001-36040 August 5, 2020 10.5† Employment Agreement by and between Fox Factory, Inc. and Richard T. Winters, dated June 29, 2019. 8-K 001-36040 August 10, 2020 10.6† Amendment to the Amended and Restated Employment Agreement, by and between Fox Factory Holding Corp. and Michael C. Dennison, dated August 5, 2020. 8-K 001-36040 August 10, 2020 10.7† Amendment to the Amended and Restated Employment Agreement, by and between Fox Factory, Inc. and Richard T. Winters, dated August 5, 2020. 8-K 001-36040 August 10, 2020 10.8† Amendment to the Amended and Restated Employment Agreement, by and between Fox Factory, Inc. and Christopher J. Tutton, dated August 5, 2020. 8-K 001-36040 August 10, 2020 10.9† Second Amendment to the Employment Agreement, by and between Fox Factory, Inc. and Richard T. Winters, dated August 5, 2022. 8-K 001-36040 August 8, 2022 10.10† Fourth Amended and Restated Non-Employee Director Compensation Policy, effective March 2, 2020. 10-K 001-36040 February 25, 2021 10.11† Fifth Amended and Restated Non-Employee Director Compensation Policy, effective January 2, 2021. 10-K 001-36040 February 25, 2021 10.12† Form of Indemnification Agreement, by and between Fox Factory Holding Corp. and certain of its officers, directors and/or advisors 10-Q 001-36040 October 31, 2018 10.13† 2008 Stock Option Plan, as amended S-1 333-189841 July 8, 2013 10.1 4 † 2008 Non-Statutory Stock Option Plan, as amended S-1/A 333-189841 August 2, 2013 10.15† Fox Factory Holding Corp. 2022 Omnibus Plan 8-K 001-36040 May 6, 2022 10.16† Form of Employee Restricted Stock Unit Award Agreement for Non-Employee Directors under 2022 Omnibus Plan (U.S.) 8-K 001-36040 May 6, 2022 10.17† Form of Restricted Stock Unit Award Agreement under 2022 Omnibus Plan 8-K 001-36040 May 6, 2022 10.18† Form of Performance Share Unit Award Agreement under the 2022 Omnibus Plan 8-K 001-36040 May 6, 2022 10. 20 Pilot Agreement, between the Gainesville and Hall County Development Authority and Fox Factory, Inc., effective June 12, 2020. 8-K 001-36040 June 16, 2020 58 Table of Contents 10. 21 Bond Purchase Agreement, between the Gainesville and Hall County Development Authority and Fox Factory, Inc., effective June 12, 2020. 8-K 001-36040 June 16, 2020 10. 22 Financing Agreement, between the Gainesville and Hall County Development Authority and Fox Factory, Inc., effective June 12, 2020. 8-K 001-36040 June 16, 2020 10. 23 Lease Agreement, between the Gainesville and Hall County Development Authority and Fox Factory, Inc., effective June 12, 2020. 8-K 001-36040 June 16, 2020 10. 24 Amendment No. 1 to Lease Agreement between the Gainesville and Hall County Development Authority and Fox Factory, Inc., dated December 31, 2020. 10-K 001-36040 February 24, 2022 10. 25 Amendment No. 2 to Lease Agreement between the Gainesville and Hall County Development Authority and Fox Factory, Inc., dated December 31, 2021. 10-K 001-36040 February 24, 2022 10. 26 Deed to Secure Debt and Security Agreement, between the Gainesville and Hall County Development Authority and Fox Factory, Inc., effective June 12, 2020. 8-K 001-36040 June 16, 2020 10. 27 Assignment of Lease Agreement, between the Gainesville and Hall County Development Authority and Fox Factory, Inc., effective June 12, 2020. 8-K 001-36040 June 16, 2020 10. 28 Direct Payment Agreement, between the Gainesville and Hall County Development Authority and Fox Factory, Inc., effective June 12, 2020. 8-K 001-36040 June 16, 2020 10. 29 Credit Agreement, among Fox Factory Holding Corp., Wells Fargo Bank, N.A., as Administrative Agent, Swingline Lender and L/C Issuer, and a group of lenders party thereto, dated April 5, 2022. 8-K 001-36040 April 5, 2022 10. 30 † Deferred Compensation Plan, effective June 30, 2021. S-8 333-264858 June 29, 2021 10.31 Securities Purchase Agreement, between Fox Factory, Inc., CWH Holdco, LLC, CWH Blocker Corp., and Thompson Street Capital Partners V, L.P., effective February 17, 2023. X 21.1 List of Subsidiaries X 23.1 Consent of Independent Registered Public Accounting Firm X 24.1 Power of Attorney (contained in signature page to this Annual Report on Form 10-K) X 31.1 Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended X 31.2 Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended X 32.1* Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended X 32.2* Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended X 101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document X 101.SCH Inline XBRL Taxonomy Extension Schema Document X 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document X 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document X 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document X 59 Table of Contents 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document X 104 Cover page formatted as Inline XBRL and contained in Exhibit 101 X † Management contract or compensatory plan. X Filed herewith * In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release Nos. 33-8238 and 34-47986, Final Rule: Management's Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Annual Report on Form 10-K and will not be deemed "filed" for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. 60 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FOX FACTORY HOLDING CORP. By: /s/ Scott R. Humphrey February 23, 2023 Scott R. Humphrey, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer & Duly Authorized Signatory) 61 Table of Contents POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Scott R. Humphrey and Michael C. Dennison, and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution for him or her, and in his or her name in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and either of them, his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Michael C. Dennison Chief Executive Officer and Director February 23, 2023 Michael C. Dennison ( Principal Executive Officer ) /s/ Scott R. Humphrey Chief Financial Officer and Treasurer February 23, 2023 Scott R. Humphrey (Principal Financial and Accounting Officer) /s/ Dudley W. Mendenhall Chairman February 23, 2023 Dudley W. Mendenhall /s/ Thomas E. Duncan Director February 23, 2023 Thomas E. Duncan /s/ Elizabeth A. Fetter Director February 23, 2023 Elizabeth A. Fetter /s/ Jean H. Hlay Director February 23, 2023 Jean H. Hlay /s/ Ted D. Waitman Director February 23, 2023 Ted D. Waitman /s/ Sidney Johnson Director February 23, 2023 Sidney Johnson 62 Table of Contents Management’s Report on Internal Control Over Financial Reporting The management of Fox is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Fox’s internal control over financial reporting is a process designed to provide reasonable assurances regarding the reliability of financial reporting and the preparation and fair presentation of financial statements issued for external purposes in accordance with accounting principles generally accepted in the United States of America (GAAP). Under the supervision of our management, including our Chief Executive Officer and Chief Financial Officer, Fox conducted an evaluation of the effectiveness of our internal control over financial reporting. Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In making its assessment of internal control over financial reporting, management used criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on the evaluation, our management concluded that its internal control over financial reporting was effective as of December 30, 2022. Grant Thornton LLP, the independent registered public accounting firm that audited the Company's consolidated financial statements, has issued an attestation report on the Company's internal control over financial reporting, which is included elsewhere in this Annual Report on Form 10-K. February 23, 2023 /s/ Michael C. Dennison Michael C. Dennison Chief Executive Officer /s/ Scott R. Humphrey Scott R. Humphrey Chief Financial Officer and Treasurer 63 Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Fox Factory Holding Corp. Opinion on the financial statements We have audited the accompanying consolidated balance sheets of Fox Factory Holding Corp. (a Delaware corporation) and subsidiaries (the “Company”) as of December 30, 2022 and December 31, 2021, the related consolidated statements of income, comprehensive income, stockholder's equity and redeemable non-controlling interest, and cash flows for each of the three years in the period ended December 30, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 30, 2022 and December 31, 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 30, 2022, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 30, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 23, 2023 expressed an unqualified opinion. Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical audit matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate. Net realizable value of inventory As discussed in Note 1 to the consolidated financial statements, adjustments are made to reduce the cost of inventory to its net realizable value, if required, for estimated excess, obsolete or impaired balances. Management monitors inventory quantities on hand and on order and records write-downs for estimated excess or obsolescence based on estimated demand for products, obsolescence of technology, product life cycles, and when pricing trends or forecasts indicate that the carrying value of inventory exceeds estimated selling price. We identified the net realizable value of inventory for certain product categories as a critical audit matter. 64 Table of Contents The principal consideration for our determination that the net realizable value of inventory represents a critical audit matter is that the assessment of the valuation of inventory is complex and includes an estimate of forecasted demand. The demand estimate is subjective and requires the Company to consider significant assumptions such as economic conditions, technology changes, and new product introductions, which are subject to significant uncertainty and therefore require significant auditor judgement. Our audit procedures related to the net realizable value of inventory included the following, among others: • We obtained management’s analysis for estimated excess or obsolete inventory. We evaluated the appropriateness of management's approach and tested the completeness and accuracy of the underlying data. • We tested selected inventory items by making inquiries of management and evaluating the appropriateness of judgments and assumptions. We also reviewed industry reports and inquired with management and various staff members outside of the finance function to understand macroeconomic, technology, and product trends. • We performed a retrospective review by comparing previous demand forecasts to actual usage during the year for a sample of items. • We compared selected 2023 estimated demand to actual customer sales orders and forecasted demand information as provided by the sales and operations team in order to test the accuracy of demand information included in the calculation. • We tested the design and operating effectiveness of controls related to the forecasted demand for the Company’s products as well as management’s review of the net realizable value of inventory. Realizability of Deferred Tax Assets As discussed in Note 1 to the consolidated financial statements, deferred tax assets and liabilities are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are provided when necessary to reduce net deferred tax assets to an amount that is more likely than not to be realized. We identified the realizability of deferred tax assets relating to the Company’s foreign tax credits as a critical audit matter. The principal considerations for our determination that the realizability of deferred tax assets relating to the Company’s foreign tax credits represent a critical audit matter are the significance of the Company’s foreign tax credits and the use of forecasted profitability by jurisdiction and source. The forecasts, including future sales and expenses by jurisdiction, are subject to a high level of estimation uncertainty and subjectivity. As a result, significant auditor judgment is necessary to audit management’s judgments and assumptions. Our audit procedures related to the realizability of deferred tax assets relating to the Company’s foreign tax credits included the following, among others: • We considered the applicability of the Company’s international transfer pricing arrangements as it relates to the Company’s ability to utilize foreign tax credits. • We tested the accuracy of the underlying data used in the forecasts by agreeing the baseline 2022 results for selected jurisdictions to general ledger balances. • We compared the previous year’s forecast of future taxable income with the 2022 actual results to assess management’s ability to accurately estimate future growth. 65 Table of Contents • We evaluated the appropriateness of the assumptions supporting the future revenue growth rate by jurisdiction. • We tested the design and operating effectiveness of controls related to the generation of the forecasts and assumptions that underpin the assessment of the realizability of deferred tax assets relating to the Company’s foreign tax credits. /s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2008. San Francisco, California February 23, 2023 66 Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Fox Factory Holding Corp. Opinion on internal control over financial reporting We have audited the internal control over financial reporting of Fox Factory Holding Corp. (a Delaware corporation) and subsidiaries (the “Company”) as of December 30, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 30, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 30, 2022, and our report dated February 23, 2023 expressed an unqualified opinion on those financial statements. Basis for opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s report on Internal Control Over Financial Reporting (“Management’s Report”). Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and limitations of internal control over financial reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ GRANT THORNTON LLP San Francisco, California February 23, 2023 67 Table of Contents FOX FACTORY HOLDING CORP. Consolidated Balance Sheets (in thousands, except par value) December 30, December 31, 2022 2021 Assets Current assets: Cash and cash equivalents $ 145,250 $ 179,686 Accounts receivable (net of allowances of $ 443 and $ 410 at December 30, 2022 and December 31, 2021, respectively) 200,440 142,040 Inventory 350,620 279,837 Prepaids and other current assets 101,364 123,107 Total current assets 797,674 724,670 Property, plant and equipment, net 202,215 192,003 Lease right-of-use assets 48,096 38,752 Deferred tax assets 57,339 34,998 Goodwill 323,978 323,299 Intangibles, net 178,980 197,021 Other assets 10,054 4,986 Total assets $ 1,618,336 $ 1,515,729 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 131,160 $ 99,984 Accrued expenses 127,729 112,378 Current portion of long-term debt — 17,500 Total current liabilities 258,889 229,862 Line of credit 200,000 — Long-term debt, less current portion — 360,953 Other liabilities 38,061 30,832 Total liabilities 496,950 621,647 Commitments and contingent liabilities (Refer to Note 12. Commitments and Contingent Liabilities ) Stockholders’ equity Preferred stock, $ 0.001 par value — 10,000 authorized and no shares issued or outstanding as of December 30, 2022 and December 31, 2021 — — Common stock, $ 0.001 par value — 90,000 authorized; 43,160 shares issued and 42,270 outstanding as of December 30, 2022; 43,010 shares issued and 42,120 outstanding as of December 31, 2021 42 42 Additional paid-in capital 356,239 344,119 Treasury stock, at cost; 890 common shares as of December 30, 2022 and December 31, 2021 ( 13,754 ) ( 13,754 ) Accumulated other comprehensive income 14,782 4,876 Retained earnings 764,077 558,799 Total stockholders’ equity 1,121,386 894,082 Total liabilities and stockholders’ equity $ 1,618,336 $ 1,515,729 The accompanying notes are an integral part of these consolidated financial statements. 68 Table of Contents FOX FACTORY HOLDING CORP. Consolidated Statements of Income (in thousands, except per share data) For the fiscal years ended December 30 December 31 January 1 2022 2021 2021 Sales $ 1,602,491 $ 1,299,064 $ 890,554 Cost of sales 1,071,148 866,732 601,007 Gross profit 531,343 432,332 289,547 Operating expenses: Sales and marketing 90,801 70,925 52,214 Research and development 56,205 46,567 34,292 General and administrative 116,103 97,241 71,309 Amortization of purchased intangibles 21,537 20,685 17,583 Total operating expenses 284,646 235,418 175,398 Income from operations 246,697 196,914 114,149 Interest and other expense, net: Interest expense 8,939 8,162 9,294 Other expense, net 3,994 371 325 Interest and other expense, net 12,933 8,533 9,619 Income before income taxes 233,764 188,381 104,530 Provision for income taxes 28,486 24,563 12,784 Net income 205,278 163,818 91,746 Less: net income attributable to non-controlling interest — — 1,072 Net income attributable to Fox stockholders $ 205,278 $ 163,818 $ 90,674 Earnings per share: Basic $ 4.86 $ 3.90 $ 2.25 Diluted $ 4.84 $ 3.87 $ 2.22 Weighted-average shares used to compute earnings per share: Basic 42,232 42,022 40,229 Diluted 42,384 42,366 40,801 The accompanying notes are an integral part of these consolidated financial statements. 69 Table of Contents FOX FACTORY HOLDING CORP. Consolidated Statements of Comprehensive Income (in thousands) For the fiscal years ended December 30, December 31, January 1, 2022 2021 2021 Net income $ 205,278 $ 163,818 $ 91,746 Other comprehensive income Interest rate swap, net of tax effects 14,824 3,644 ( 699 ) Foreign currency translation adjustments, net of tax effects ( 4,918 ) 164 1,617 Other comprehensive income 9,906 3,808 918 Comprehensive income 215,184 167,626 92,664 Less: comprehensive income attributable to non-controlling interest — — 1,072 Comprehensive income attributable to Fox stockholders $ 215,184 $ 167,626 $ 91,592 The accompanying notes are an integral part of these consolidated financial statements. 70 Table of Contents FOX FACTORY HOLDING CORP. Consolidated Statements of Stockholders' Equity and Redeemable Non-controlling Interest (in thousands, except per share amounts) Common Stock Treasury Additional paid-in capital Accumulated other comprehensive income Retained earnings Total stockholders' equity Redeemable non-controlling interest Shares Amount Shares Amount Balance - January 3, 2020 39,448 $ 39 890 $ ( 13,754 ) $ 123,274 $ 150 $ 312,491 $ 422,200 $ 15,719 Issuance of common stock under equity compensation plans, net of shares repurchased for income tax withholding 348 1 — — ( 4,342 ) — — ( 4,341 ) — Issuance of common stock, net 2,760 2 — — 198,233 — — 198,235 — Issuance of stock for business acquisition — — — — 322 — — 322 — Adjustment to the fair value of non-controlling interest — — — — — — ( 8,184 ) ( 8,184 ) 8,184 Redeemable non-controlling interest 136 — — — 11,169 — — 11,169 ( 24,975 ) Stock-based compensation expense — — — — 8,178 — — 8,178 — Other comprehensive income — — — — — 918 — 918 — Net income — — — — — — 90,674 90,674 1,072 Balance - January 1, 2021 42,692 $ 42 890 $ ( 13,754 ) $ 336,834 $ 1,068 $ 394,981 $ 719,171 $ — Issuance of common stock under equity compensation plans, net of shares repurchased for income tax withholding 318 — — — ( 7,050 ) — — ( 7,050 ) — Stock-based compensation expense — — — — 14,335 — — 14,335 — Other comprehensive income — — — — — 3,808 — 3,808 — Net income — — — — — — 163,818 163,818 — Balance - December 31, 2021 43,010 $ 42 890 $ ( 13,754 ) $ 344,119 $ 4,876 $ 558,799 $ 894,082 $ — Issuance of common stock under equity compensation plans, net of shares repurchased for income tax withholding 150 — — — ( 4,231 ) — — ( 4,231 ) — Stock-based compensation expense — — — — 16,351 — — 16,351 — Other comprehensive income — — — — — 9,906 — 9,906 — Net income — — — — — — 205,278 205,278 — Balance - December 30, 2022 43,160 $ 42 890 $ ( 13,754 ) $ 356,239 $ 14,782 $ 764,077 $ 1,121,386 $ — The accompanying notes are an integral part of these consolidated statements. 71 Table of Contents FOX FACTORY HOLDING CORP. Consolidated Statements of Cash Flows (in thousands) For the fiscal years ended December 30, December 31, January 1, 2022 2021 2021 OPERATING ACTIVITIES: Net income $ 205,278 $ 163,818 $ 91,746 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 49,242 43,426 33,927 Stock-based compensation 16,351 13,914 8,618 Amortization of loan fees 1,086 1,631 1,543 Write off of unamortized loan origination fees 1,927 — — Amortization of deferred gains on prior swap settlements ( 3,177 ) ( 48 ) — Gain on disposal of property and equipment ( 1,740 ) ( 96 ) — Deferred taxes and uncertain tax positions ( 18,445 ) ( 17,096 ) ( 14,291 ) Changes in operating assets and liabilities: Accounts receivable ( 63,957 ) ( 20,230 ) ( 18,771 ) Inventory ( 78,537 ) ( 146,532 ) 7,877 Income taxes 8,717 26,789 1,192 Prepaids and other assets 18,132 ( 34,509 ) ( 66,400 ) Accounts payable 40,493 10,304 25,892 Accrued expenses and other liabilities 11,724 21,813 11,166 Net cash provided by operating activities 187,094 63,184 82,499 INVESTING ACTIVITIES: Acquisition of businesses, net of cash acquired ( 714 ) ( 51,881 ) ( 331,531 ) Acquisition of other assets ( 3,500 ) — ( 250 ) Purchases of property and equipment ( 43,701 ) ( 54,846 ) ( 56,744 ) Proceeds from sale of property and equipment 3,180 1,781 — Net cash used in investing activities ( 44,735 ) ( 104,946 ) ( 388,525 ) FINANCING ACTIVITIES: Proceeds from line of credit, net of origination fees 602,356 37,931 225,125 Payments on line of credit ( 404,336 ) ( 37,931 ) ( 293,125 ) Proceeds from issuance of debt, net of origination fees — — 392,385 Repayment of term debt upon refinancing of Prior Credit Facility ( 382,500 ) ( 12,500 ) ( 5,000 ) Proceeds from sale of common stock, net — — 198,236 Installment on purchase of non-controlling interest ( 2,700 ) ( 4,550 ) ( 6,556 ) Repurchases from stock compensation program, net ( 4,231 ) ( 7,050 ) ( 4,343 ) Proceeds from termination of swap agreement 12,270 324 — Net cash (used in) provided by financing activities ( 179,141 ) ( 23,776 ) 506,722 EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 2,346 ( 540 ) 1,332 CHANGE IN CASH AND CASH EQUIVALENTS ( 34,436 ) ( 66,078 ) 202,028 CASH AND CASH EQUIVALENTS—Beginning of year 179,686 245,764 43,736 CASH AND CASH EQUIVALENTS—End of year $ 145,250 $ 179,686 $ 245,764 The accompanying notes are an integral part of these consolidated statements. 72 FOX FACTORY HOLDING CORP. Consolidated Statements of Cash Flows (in thousands) For the fiscal years ended December 30, December 31, January 1, SUPPLEMENTAL CASH FLOW INFORMATION: 2022 2021 2021 Cash paid during the period for: Income taxes $ 37,493 $ 14,980 $ 26,228 Cash paid for interest, net of capitalized interest $ 9,922 $ 6,384 $ 7,171 Cash paid for amounts included in the measurement of lease liabilities $ 10,499 $ 8,747 $ 7,095 Non-cash operating activities: Right-of-use assets obtained in exchange for lease obligations $ 21,167 $ 20,289 $ 14,178 Non-cash investing and financing activities: Acquisition of non-controlling interest in exchange for equity and installment payments $ — $ — $ 18,419 Capital expenditures included in accounts payable $ 2,049 $ 3,491 $ 6,997 The accompanying notes are an integral part of these consolidated financial statements. 73 Table of Contents FOX FACTORY HOLDING CORP. Notes to Consolidated Financial Statements December 30, 2022 (in thousands, except per share amounts) 1. Description of the Business, Basis of Presentation and Summary of Significant Accounting Policies Fox Factory Holding Corp. (the "Company") designs, engineers, manufactures and markets performance-defining products and systems for customers worldwide. Our premium brand, performance-defining products and systems are used primarily for bicycles ("bikes"), side-by-side vehicles ("side-by-sides"), on-road vehicles with and without off-road capabilities, off-road vehicles and trucks, all-terrain vehicles ("ATVs"), snowmobiles, and specialty vehicles and applications. Some of our products are specifically designed and marketed to the leading cycling and powered vehicle original equipment manufacturers ("OEMs"), while others are distributed to consumers through a global network of dealers and distributors. Throughout this Annual Report on Form 10-K, unless stated otherwise or as the context otherwise requires, the "Company," "FOX," "Fox Factory," "we," "us," "our," and "ours" refer to Fox Factory Holding Corp. and its operating subsidiaries on a consolidated basis. Basis of Presentation - The accompanying consolidated financial statements have been prepared in accordance with United States of America ("U.S.") generally accepted accounting principles ("GAAP"). Fiscal Year Calendar - The Company operates using a 52-53 week fiscal year calendar ending on the Friday nearest to December 31. Therefore, the financial results of certain fiscal years and quarters, which will contain 53 and 14 weeks, respectively, will not be exactly comparable to the prior and subsequent fiscal years and quarters, which contain 52 and 13 weeks, respectively. For the fiscal years 2022, 2021 and 2020, the Company's fiscal year ended on December 30, 2022, December 31, 2021 and January 1, 2021 and each had 52 weeks. Principles of Consolidation - The consolidated financial statements include the Company and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Use of Estimates - The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. These estimates are based on information available as of the date of the financial statements; therefore, actual results could differ from management’s estimates. Foreign Currency Translation and Transaction - The functional currency of the Company’s non-U.S. entities is the local currency of the respective operations. The Company translates the financial statements of its non-U.S. entities into U.S. Dollars each reporting period for purposes of consolidation. Assets and liabilities of the Company’s foreign subsidiaries are translated at the period-end currency exchange rates while sales and expenses are translated at the average currency exchange rates in effect for the period. The effects of these translation adjustments are a component of other comprehensive income. Foreign currency transaction losses of $ 3,377 , $ 455 , and $ 396 for the years ended December 30, 2022, December 31, 2021 and January 1, 2021, respectively, are included as a component of other income or expense. Cash and Cash Equivalents - Cash consists of cash maintained in checking or money market accounts. All highly liquid investments purchased with an original maturity date of 90 days or less at the date of purchase are considered to be cash equivalents. Accounts Receivable - Accounts receivable are unsecured customer obligations which generally require payment within various terms from the invoice date. The receivables are stated at the invoice amount. Financing terms vary by customer. Invoices are considered past due when payment is not received within the terms stated within the contract. Payments of accounts receivable are applied to the specific invoices identified on the customer’s remittance advice or if unspecified, generally to the earliest unpaid invoices. The carrying amount of accounts receivable is reduced by a valuation allowance that reflects management’s best estimate of amounts that may not be collected. All accounts or portions thereof deemed to be uncollectible or that may require an excessive collection cost are written off to the allowance for credit losses. 74 Table of Contents FOX FACTORY HOLDING CORP. Notes to Consolidated Financial Statements - Continued December 30, 2022 (in thousands, except per share amounts) Concentration of Credit Risk - Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist primarily of cash and accounts receivable. As of December 30, 2022 the Company held $ 64,859 in cash at U.S. subsidiaries and $ 80,391 at subsidiaries outside the U.S. The account balances may significantly exceed the insurance coverage provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions with reputable credit and therefore bear minimal credit risk. The Company has not experienced any losses in its uninsured accounts. The Company mitigates its credit risk with respect to accounts receivable by performing ongoing credit evaluations and monitoring of its customers’ accounts receivable balances. The following customers accounted for 10% or more of the Company's accounts receivable balance: December 30, December 31, 2022 2021 Customer A 14 % 6 % Customer B 9 % 11 % Customer C 8 % 10 % No other customers were individually significant in any of these periods presented. The Company depends on a limited number of vendors to supply component parts for its products. The Company purchased 34 %, 32 %, and 28 % of its product components for the years ended December 30, 2022, December 31, 2021 and January 1, 2021, respectively, from ten vendors. As of December 30, 2022 and December 31, 2021, amounts due to these vendors represented 38 % and 10 % of accounts payable, respectively. Allowance for Credit Losses - The Company records a provision for credit losses based on historical experience and a detailed assessment of the collectability of its accounts receivable. The provision is based on how long a receivable has been outstanding, taking into account the historical credit loss rate and adjusting for both current conditions and forecasts of economic conditions into that expected credit loss rate. If circumstances change, such as higher-than-expected defaults or an unexpected material adverse change in a major customer’s ability to meet its financial obligations, the Company’s estimate of the recoverability of the amounts due could be reduced by a material amount. The following table presents the activity in the allowance for credit losses: For the fiscal years ended December 30 December 31 January 1 Allowance for credit losses: 2022 2021 2021 Balance, beginning of year $ 410 $ 663 $ 810 Add: bad debt expense (benefit) 446 ( 14 ) 103 Less: write-offs, net of recoveries ( 413 ) ( 239 ) ( 250 ) Balance, end of year $ 443 $ 410 $ 663 Inventories - Inventories are stated at the lower of actual cost (or standard cost which generally approximates actual costs on a first-in first-out basis) or net realizable value. Cost includes raw materials and inbound freight, as well as direct labor and manufacturing overhead for products we manufacture. Net realizable value is based on current replacement cost for raw materials and on a net realizable value for finished goods. Adjustments to reduce the cost of inventory to its net realizable value are made, if required, for estimated excess, obsolescence or impaired balances. 75 Table of Contents FOX FACTORY HOLDING CORP. Notes to Consolidated Financial Statements - Continued December 30, 2022 (in thousands, except per share amounts) Property and Equipment - Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Maintenance and repairs are charged to expense as incurred, and improvements and betterments are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation and amortization are removed from the balance sheet and any resulting gain or loss is reflected in operations in the period realized. Leasehold improvements are amortized on a straight-line basis over the terms of the lease, or the useful lives of the assets, whichever is shorter. The value assigned to land associated with buildings we own is not amortized. Depreciation and amortization periods for the Company’s property and equipment are as follows: Asset Classification Estimated useful life Building and building improvements 15 - 39 years Information systems, office equipment and furniture 3 - 7 years Internal-use computer software 10 years Land improvements 15 years Machinery and manufacturing equipment 5 - 15 years Transportation equipment 3 - 5 years Internal-use Computer Software Costs - Costs incurred to purchase and develop computer software for internal use are capitalized during the application development and implementation stages. These software costs have been for enterprise-level business and finance software that is customized to meet the Company’s operational needs. Capitalized costs are included in property and equipment and are amortized on a straight-line basis over the estimated useful life of the software beginning when the software project is substantially complete and placed in service. The Company capitalized $ 4,863 in internal use computer software costs during the year ended December 30, 2022. Costs incurred during the preliminary project stage and costs for training, data conversion, and maintenance are expensed as incurred. Impairment of Long-lived Assets - The Company periodically reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset is impaired or the estimated useful lives are no longer appropriate. If indicators of impairment exist and the undiscounted projected cash flows associated with such assets are less than the carrying amount of the assets, an impairment loss is recorded to write the assets down to their estimated fair values. Fair value is estimated based on discounted future cash flows. No impairment charges were recorded during the years ended December 30, 2022, December 31, 2021 and January 1, 2021. Business Combinations - The Company accounts for acquisitions of entities that include inputs and processes and have the ability to create outputs as business combinations. The Company allocates the purchase price of the acquisition to the tangible assets acquired, liabilities assumed and identifiable intangible assets acquired based on their estimated fair values. The excess of the purchase price over those fair values is recorded as goodwill. Acquisition-related expenses and restructuring costs are expensed as incurred. During the measurement period, the Company records adjustments to provisional amounts recorded for assets acquired and liabilities assumed with the corresponding offset to goodwill. After the measurement period, which could be up to one year after the transaction date, subsequent adjustments are recorded to the Company’s consolidated statements of income. 76 Table of Contents FOX FACTORY HOLDING CORP. Notes to Consolidated Financial Statements - Continued December 30, 2022 (in thousands, except per share amounts) Goodwill and Intangible Assets - Goodwill represents the excess of purchase price over the fair value of the net assets of businesses acquired. On an annual basis, the Company makes a qualitative assessment to determine if it is more likely than not that the fair value of the reporting unit is less than its carrying amount, including goodwill. If the Company determines that the fair value of the reporting unit is less than its carrying amount, it will perform a quantitative analysis; otherwise, no further evaluation is necessary. For the quantitative impairment assessment, the Company compares the fair value of the reporting unit to its carrying value, including goodwill. The Company determines the fair value of the reporting unit based on a weighting of income and market approaches. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not impaired and no further testing is performed. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then the Company will recognize a loss equal to the excess, limited to the total amount of goodwill allocated to that reporting unit. Impairments, if any, are charged directly to earnings. We completed our most recent annual impairment test in the third quarter of 2022 at which time we had a single reporting unit for purposes of assessing goodwill impairment. No impairment charges have been incurred to date. Intangible assets including customer relationships, certain trademarks, and the Company’s core technology, are subject to amortization over their respective useful lives, and are classified in intangibles, net in the accompanying consolidated balance sheet. These intangibles are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be fully recoverable. If facts and circumstances indicate that the carrying value might not be recoverable, projected undiscounted net cash flows associated with the related asset or group of assets over their estimated remaining useful lives is compared against their respective carrying amounts. If an asset is found to be impaired, the impairment charge will be measured as the amount by which the carrying amount of an entity exceeds its fair value. Certain trademarks and brands are considered to be indefinite life intangibles, and are not amortized but are subject to testing for impairment annually. No impairments of intangible assets were identified in the years ended December 30, 2022, December 31, 2021 and January 1, 2021. Self-Insurance - The Company is self-insured for its U.S. employee health and welfare benefits. The Company’s liability for self-insurance is based on claims filed and an estimate of claims incurred but not yet reported. The Company considers a number of factors, including historical claims information, when determining the amount of the accrual. Costs related to the administration of the plan and related claims are expensed as incurred. The Company has third-party insurance coverage to limit exposure for individually significant claims. The estimates for unpaid claims incurred as of December 30, 2022 and December 31, 2021 are $ 1,988 and $ 1,754 respectively, and are recorded within accrued expenses on the consolidated balance sheets. Revenue Recognition - Revenues are generated from the sale of performance-defining products and systems to customers worldwide. The Company’s performance-defining products and systems are solutions that improve performance of powered vehicles and bikes. Powered vehicles include side-by-sides, on-road vehicles with off-road capabilities, off-road vehicles and trucks, ATVs, snowmobiles, specialty vehicles and applications, and motorcycles. Revenue is measured based on the consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control of a product to a customer, generally at the time of shipment. Contracts are generally in the form of purchase orders and are governed by standard terms and conditions. For larger OEMs, the Company may also enter into master agreements. Sales tax and other similar taxes are excluded from revenues. Revenues generated from upfit packages generally do not include the vehicle chassis, as the Company is not the principal in this arrangement and the automotive dealer purchases the chassis directly from the OEM. The Company is required to place a deposit on all vehicle chassis that the dealer purchases directly from the OEM, however that deposit is refunded when the chassis is sold through to the end customer. Provisions for discounts, rebates, sales incentives, returns, and other adjustments are generally provided for in the period the related sales are recorded, based on management’s assessment of historical trends and projection of future results. Certain pricing provisions that provide the customer with future discounts are considered a material right. Such material rights result in the deferral of revenues that are recognized when the rights are exercised by the customer. Measuring the material rights requires judgments including forecasts of future sales and product mix. Cost of Sales - Cost of sales primarily consists of materials and labor expense in the manufacturing of the Company’s products sold to customers. Cost of sales also includes provisions for excess and obsolete inventory, warranty costs, certain allocated costs for facilities, depreciation and other manufacturing overhead. Additionally, it includes stock-based compensation for personnel directly involved with manufacturing the Company’s product offerings. 77 Table of Contents FOX FACTORY HOLDING CORP. Notes to Consolidated Financial Statements - Continued December 30, 2022 (in thousands, except per share amounts) Shipping and Handling Fees and Costs - The Company includes shipping and handling fees billed to customers in sales. Shipping costs associated with inbound freight are capitalized as part of inventory and included in cost of sales as products are sold. Sales and Marketing - Our sales and marketing expenses include costs related to our sales, customer service and marketing personnel, including their wages, employee benefits and related stock-based compensation, and occupancy related expenses. Other significant sales and marketing expenses include commissions paid to outside sales representatives, promotional materials and products, our sales office costs, race support and sponsorships of events and athletes, advertising and promotions related to trade shows, and travel and entertainment. Research and Development - Research and development expenses consist primarily of salaries and personnel costs, including wages, employee benefits and related stock-based compensation for the Company’s engineering, research and development teams, occupancy related expenses, fees for third party consultants, service fees, and expenses for prototype tooling and materials, travel, and supplies. The Company expenses research and development costs as incurred. General and Administrative - General and administrative expenses include costs related to executive, finance, information technology, human resources and administrative personnel, including wages, employee benefits and related stock-based compensation expenses. The Company records professional and contract service expenses, occupancy related expenses associated with corporate locations and equipment, and legal expenses in general and administrative expenses. Stock-Based Compensation - The Company measures stock-based compensation for all stock-based awards, including stock options and restricted stock units (“RSUs”), based on their estimated fair values on the date of the grant and recognizes the stock-based compensation cost for time-vested awards on a straight-line basis over the requisite service period. For performance-based RSUs, the number of shares ultimately expected to vest is estimated at each reporting date based on management’s expectations regarding the relevant performance criteria. To the extent shares are expected to vest, the stock-based compensation cost is recognized on a straight-line basis over the requisite service period. The fair value of each stock option granted is estimated using the Black-Scholes option-pricing model. The Company does not estimate forfeitures in recognizing stock-based compensation expense. The fair value of the RSUs is equal to the fair value of the Company’s common stock on the grant date of the award. Income Taxes - Income taxes are computed using the asset and liability method, under which deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Operating loss and tax credit carryforwards are measured by applying currently enacted tax laws. Valuation allowances are provided when necessary to reduce net deferred tax assets to an amount that is more likely than not to be realized. The Company accounts for global intangible low-taxed income ("GILTI") in the year the tax is incurred, rather than recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years. The net GILTI inclusion for the year ended December 30, 2022 was fully offset by foreign tax credits associated with the income. The Company recognizes the tax effects of an uncertain tax position only if it is more likely than not to be sustained based solely on its technical merits as of the reporting date and then only in an amount more likely than not to be sustained upon review by the tax authorities. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes. Advertising - Advertising costs are expensed as incurred and recorded as sales and marketing expenses on our Consolidated Statements of Income. Costs incurred for advertising totaled $ 4,813 , $ 2,741 , and $ 2,188 for the years ended December 30, 2022, December 31, 2021 and January 1, 2021, respectively. Warranties - The Company offers limited warranties on its products generally for one to two years . The Company recognizes estimated costs related to warranty activities as a component of cost of sales upon product shipment. The estimates are based upon historical product failure rates and historical costs incurred in correcting product failures. The recorded amount is adjusted from time to time for specifically identified warranty exposures. Actual warranty expenses are charged against the Company’s estimated warranty liability when incurred. Factors that affect the Company’s liability include the number of units, historical and anticipated rates of warranty claims, and the cost per claim. 78 Table of Contents FOX FACTORY HOLDING CORP. Notes to Consolidated Financial Statements - Continued December 30, 2022 (in thousands, except per share amounts) Segments - The Company has determined that it has a single operating and reportable segment; manufacturing, sale and service of performance-defining products. The Company considers operating segments to be components of the Company in which separate financial information is available that is evaluated regularly by the Company’s chief operating decision maker in deciding how to allocate resources and in assessing performance. The chief operating decision maker for the Company is the Chief Executive Officer. The Chief Executive Officer reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. Fair Value Measurements and Financial Instruments - The Financial Accounting Standards Board ("FASB") has issued Accounting Standards Codification 820, Fair Value Measurements and Disclosures , that requires the valuation of assets and liabilities required or permitted to be either recorded or disclosed at fair value based on hierarchy of available inputs as follows: Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2: Quoted prices for similar assets and liabilities in active markets, quoted prices for identical assets and liabilities in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). The carrying amounts of the Company’s financial instruments, including cash, receivables, accounts payable, and accrued liabilities approximate their fair values due to their short-term nature. As of December 31, 2021, amounts owed under the Company's Prior Credit Facility approximated fair value because it had a variable interest rate that reflected market changes in interest rates and changes in the Company’s net leverage ratio. The Prior Credit Facility was terminated on April 5, 2022 and replaced with the revolving 2022 Credit Facility. Certain Significant Risks and Uncertainties - The Company is subject to those risks common in manufacturing-driven markets, including, but not limited to, competitive forces, dependence on key personnel, customer demand for its products, the successful protection of its proprietary technologies, compliance with government regulations, and the possibility of not being able to obtain additional financing when needed. Additionally, the Company has been impacted by the coronavirus (“COVID-19”) outbreak. The global outbreak of COVID-19 has negatively affected the U.S. and global economy, disrupted global supply chains, resulted in significant travel and transport restrictions, including mandated closures and orders to “shelter-in-place,” and created significant disruption of the financial markets. Despite the Company’s efforts to manage and remedy these impacts to the Company, the ultimate impact and the extent to which the COVID-19 pandemic will continue to affect the business, results of operation and financial condition is difficult to predict and depends on numerous evolving factors outside of the Company’s control including: the duration and scope of the pandemic; government, social, business and other actions that have been and will be taken in response to the pandemic; and the effect of the pandemic on short and long-term general economic conditions. Recent Accounting Pronouncements - In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which helps simplify how entities account for income taxes by removing various exceptions related to the recognition of deferred tax liabilities and updating other tax computation requirements. This standard is effective for fiscal years beginning after December 15, 2020 and early adoption is permitted. The Company adopted ASU 2019-12 effective in the first quarter of fiscal year 2021. The adoption of ASU 2021-12 did not have a material impact on the Company's consolidated financial statements. In October 2020, the FASB issued ASU 2020-10, Codification Improvements. The amendments in ASU 2020-10 contain improvements to the Codification to ensure consistency by including disclosure guidance in the appropriate Disclosure Section. This guidance includes an option for an entity to provide certain information either on the face of the financial statements or in the notes. The ASU also provides clarification to various codification topics to improve consistency in guidance application. The amendments are effective for interim and annual reporting periods in fiscal years beginning after December 15, 2020, with early adoption permitted. The Company adopted ASU 2020-10 effective in the first quarter of fiscal year 2021. The adoption of ASU 2020-10 did not have a material impact on the Company's consolidated financial statements and related disclosures. 79 Table of Contents FOX FACTORY HOLDING CORP. Notes to Consolidated Financial Statements - Continued December 30, 2022 (in thousands, except per share amounts) In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. Under ASU 2021-08, an acquirer must recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. The guidance is effective for interim and annual periods beginning after December 15, 2022, with early adoption permitted. The Company adopted this guidance in the first quarter of 2022. This adoption did not have a material impact on our financial statements. In September 2022, the FASB issued ASU 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405): Disclosure of Supplier Finance Program Obligations. Under ASU 2022-04, the buyer in a supplier finance program is required to disclose sufficient information to allow a user of the financial statements to understand the program's nature, activity during the period, changes from period to period, and potential magnitude. The guidance is effective for interim and annual periods beginning after December 15, 2022, with early adoption permitted. These amendments will be applied retrospectively to each period in which a balance sheet is presented, except for the disclosure of rollforward information, which will be applied prospectively. The Company expects to adopt the interim disclosure requirements as applicable during the first quarter of 2023 and the annual disclosure requirements, except for the annual rollforward, in the 2023 Annual Report on Form 10-K. The Company expects to adopt the annual rollforward requirement in the 2024 Annual Report on Form 10-K. This adoption is not expected to have a material impact on our financial statements. The Company is currently evaluating ASU 2022-04 and assessing the impact this guidance will have on its consolidated financial statements and disclosures. 2. Revenues The following table summarizes total sales by product category: For the fiscal years ended December 30 December 31 January 1 2022 2021 2021 Powered Vehicle products $ 921,520 $ 720,029 $ 523,694 Specialty Sports products 680,971 579,035 366,860 Total sales $ 1,602,491 $ 1,299,064 $ 890,554 The following table summarizes total sales by sales channel: For the fiscal years ended December 30 December 31 January 1 2022 2021 2021 OEM $ 909,550 $ 718,000 $ 494,068 Aftermarket 692,941 581,064 396,486 Total sales $ 1,602,491 $ 1,299,064 $ 890,554 The following table summarizes total sales generated by geographic location of the customer: For the fiscal years ended December 30 December 31 January 1 2022 2021 2021 North America $ 1,009,203 $ 811,312 $ 593,267 Asia 252,275 241,033 144,836 Europe 320,545 230,491 143,817 Rest of the World 20,468 16,228 8,634 Total sales $ 1,602,491 $ 1,299,064 $ 890,554 80 Table of Contents FOX FACTORY HOLDING CORP. Notes to Consolidated Financial Statements - Continued December 30, 2022 (in thousands, except per share amounts) 3. Inventory Inventory consisted of the following: December 30, December 31, 2022 2021 Raw materials $ 247,441 $ 200,460 Work-in-process 9,959 7,539 Finished goods 93,220 71,838 Total inventory $ 350,620 $ 279,837 4. Prepaids and Other Current Assets Prepaids and other current assets consisted of the following: December 30, December 31 2022 2021 Prepaid chassis deposits $ 74,013 $ 98,618 Advanced payments and prepaid contracts 13,598 14,024 Other current assets 13,753 10,465 Total prepaids and other assets $ 101,364 $ 123,107 5. Property, Plant and Equipment, net Property, plant and equipment consisted of the following: December 30, December 31, 2022 2021 Building and building improvements $ 73,594 $ 72,088 Information systems, office equipment and furniture 21,655 20,988 Internal-use computer software 30,290 25,700 Land and land improvements 14,493 15,663 Leasehold improvements 20,078 22,835 Machinery and manufacturing equipment 122,748 106,628 Transportation equipment 12,450 7,372 Total property, plant and equipment 295,308 271,274 Less: accumulated depreciation and amortization ( 93,093 ) ( 79,271 ) Total property, plant and equipment, net $ 202,215 $ 192,003 At the end of March 2022, the Company retired approximately $6,717 in assets that were fully depreciated in response to the shutdown of our Watsonville, California facility. Depreciation expense was $ 27,705 , $ 22,741 , and $ 16,341 for the years ended December 30, 2022, December 31, 2021 and January 1, 2021, respectively, including $ 3,787 , $ 2,492 , and $ 2,250 of internal-use software amortization for the years ended December 30, 2022, December 31, 2021 and January 1, 2021, respectively. The Company capitalized $ 4,863 in internal use computer software costs during the year ended December 30, 2022. 81 Table of Contents FOX FACTORY HOLDING CORP. Notes to Consolidated Financial Statements - Continued December 30, 2022 (in thousands, except per share amounts) The following table summarizes the allocation of depreciation expense in the accompanying consolidated statements of income: For the fiscal years ended December 30 December 31 January 1 2022 2021 2021 Cost of sales $ 13,741 $ 11,656 $ 9,266 General and administrative 11,003 8,780 4,868 Research and development 2,441 2,080 2,044 Sales and marketing 520 225 163 Total depreciation expense $ 27,705 $ 22,741 $ 16,341 The Company’s long-lived assets by geographic location are as follows: December 30, December 31, 2022 2021 United States $ 166,544 $ 161,451 International 35,671 30,552 Total long-lived assets $ 202,215 $ 192,003 6. Leases The Company has operating lease agreements for administrative, research and development, manufacturing, and sales and marketing facilities. These leases have remaining lease terms ranging from one to ten years , some of which include options to extend the lease term for up to ten years , and some of which include options to terminate the leases within one year . Certain leases are subject to annual escalations as specified in the lease agreements. The Company considered these options in determining the lease term used to establish its right-of-use assets and lease liabilities. These lease agreements do not contain any material residual value guarantees or material restrictive covenants. As most of the Company's leases do not provide an interest rate, the Company used the incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The weighted-average remaining lease term for the Company's operating leases was 5.64 years and the weighted-average incremental borrowing rate was 2.42 % as of December 30, 2022. Operating lease costs consisted of the following: For the fiscal years ended December 30 December 31 January 1 2022 2021 2021 Operating lease cost $ 11,209 $ 9,124 $ 7,201 Other lease costs (1) 3,638 1,122 937 Total lease costs $ 14,847 $ 10,246 $ 8,138 (1) Includes short-term leases and variable lease costs. The Company elected a policy exclusion permitting leases with an original lease term of less than one year to be excluded from the right-of-use assets and lease liabilities. 82 Table of Contents FOX FACTORY HOLDING CORP. Notes to Consolidated Financial Statements - Continued December 30, 2022 (in thousands, except per share amounts) Supplemental balance sheet information related to the Company's operating leases is as follows: Balance Sheet Classification December 30, 2022 Operating lease right-of-use assets Lease right-of-use assets $ 48,096 Current lease liabilities Accrued expenses $ 10,314 Non-current lease liabilities Other liabilities $ 37,098 Maturities of lease liabilities by fiscal year for the Company's operating leases are as follows: For fiscal year Total future payments 2023 $ 11,376 2024 10,480 2025 8,123 2026 7,027 2027 4,418 Thereafter 9,649 Total lease payments 51,073 Less: imputed interest ( 3,661 ) Present value of lease liabilities 47,412 Less: current portion ( 10,314 ) Lease liabilities less current portion $ 37,098 7. Goodwill and Intangible Assets Intangible assets, excluding goodwill, are comprised of the following: Gross carrying amount Accumulated amortization Net carrying amount Weighted average life (years) December 30, 2022 Customer relationships $ 195,910 $ ( 86,023 ) $ 109,887 10 Core technology 39,291 ( 34,412 ) 4,879 8 Trademarks and brands, subject to amortization 12,443 ( 3,799 ) 8,644 9 Total $ 247,644 $ ( 124,234 ) 123,410 Trademarks and brands, not subject to amortization 55,570 Total $ 178,980 December 31, 2021 Customer relationships $ 195,910 $ ( 66,240 ) $ 129,670 10 Core technology 35,795 ( 33,989 ) 1,806 8 Trademarks and brands, subject to amortization 12,443 ( 2,468 ) 9,975 9 Total $ 244,148 $ ( 102,697 ) 141,451 Trademarks and brands, not subject to amortization 55,570 Total $ 197,021 83 Table of Contents FOX FACTORY HOLDING CORP. Notes to Consolidated Financial Statements - Continued December 30, 2022 (in thousands, except per share amounts) The following table summarizes the amortization of intangible assets in the accompanying consolidated statements of income: For the fiscal years ended December 30 December 31 January 1 2022 2021 2021 Amortization of intangibles $ 21,537 $ 20,685 $ 17,583 Future amortization expense for finite-lived intangibles as of December 30, 2022 is as follows: For fiscal year: Amortization Expense 2023 $ 21,058 2024 20,851 2025 18,216 2026 17,658 2027 16,307 Thereafter 29,320 Total expected future amortization $ 123,410 Goodwill activity consisted of the following: Balance as of December 31, 2021 $ 323,299 Acquisitions (Refer to Note 18. Acquisitions ) 714 Currency translation and other adjustments ( 35 ) Balance as of December 30, 2022 $ 323,978 8. Accrued Expenses Accrued expenses consisted of the following: December 30, December 31, 2022 2021 Payroll and related expenses $ 38,193 $ 32,968 Current portion of lease liabilities 10,314 9,095 Warranty 17,071 15,510 Income tax payable 40,701 34,845 Accrued sales rebate 8,693 8,568 NCI buyout liability — 2,700 Other accrued expenses 12,757 8,692 Total accrued expenses $ 127,729 $ 112,378 Activity related to warranties is as follows: 84 Table of Contents FOX FACTORY HOLDING CORP. Notes to Consolidated Financial Statements - Continued December 30, 2022 (in thousands, except per share amounts) For the fiscal years ended December 30 December 31 January 1 2022 2021 2021 Beginning warranty liability $ 15,510 $ 9,835 $ 5,649 Charge to cost of sales 11,387 13,603 6,887 Fair value of warranty assumed in acquisition — 150 3,158 Costs incurred ( 9,826 ) ( 8,078 ) ( 5,859 ) Ending warranty liability $ 17,071 $ 15,510 $ 9,835 9. Related Party Transactions On March 11, 2020, the Company acquired 100% of the issued and outstanding stock of SCA Performance Holdings, Inc. ("SCA"). Refer to Note 18. Acquisitions for further details of this acquisition. The Company has transactions with an automotive dealership owned by a former owner of SCA, who is now an employee of the Company. The Company purchased approximately $ 2,015 , $ 1,206 and $ 1,172 in parts and vehicles, and sold approximately $ 1,010 , $ 538 and $ 404 of upfit packages to the dealership during the years ended December 30, 2022, December 31, 2021 and January 1, 2021, respectively. The Company had $ 99 and $ 105 in accounts payable, related to this dealership as of December 30, 2022 and December 31, 2021, respectively. The Company had $ 50 in accounts receivable related to this dealership as of December 31, 2021. No accounts receivable were outstanding as of December 30, 2022. On July 22, 2020 the Company, pursuant to a stock purchase agreement with Flagship, Inc., purchased the remaining 20 % interest of FF US Holding Corp. for $ 24,975 payable in a combination of stock and cash. The cash and stock portions were settled in quarterly installments through July 2022. Refer to Note 12. Commitments and Contingent Liabilities for additional details of this agreement. 10. Debt Prior Credit Facility In June 2019, the Company entered into a credit facility with Bank of America and other named lenders, which was periodically amended and restated and/or amended. The credit facility was amended and restated on March 11, 2020, and further amended on June 19, 2020, June 11, 2021 and December 16, 2021 (as amended, the "Prior Credit Facility"). The Prior Credit Facility (which was terminated on April 5, 2022 and replaced with the 2022 Credit Facility (as discussed below)), would have matured on March 11, 2025, and provided a senior secured revolving line of credit with a borrowing capacity of $ 250,000 and a term loan of $ 400,000 . The term loan was subject to quarterly amortization payments. 2022 Credit Facility On April 5, 2022, the Company entered into a new credit agreement with Wells Fargo Bank, National Association, and other named lenders (the "2022 Credit Facility"), and concurrently repaid in full and terminated the Prior Credit Facility. The 2022 Credit Facility, which matures on April 5, 2027, provides for revolving loans, swingline loans and letters of credit up to an aggregate amount of $ 650,000 . On April 5, 2022, the Company borrowed $ 475,000 under the 2022 Credit Facility, which was used to repay all outstanding amounts owed under the Prior Credit Facility and for general corporate purposes. Future advances under the 2022 Credit Facility will be used to finance working capital, capital expenditures and other general corporate purposes of the Company. To the extent not previously paid, all then-outstanding amounts under the 2022 Credit Facility are due and payable on the maturity date. 85 Table of Contents FOX FACTORY HOLDING CORP. Notes to Consolidated Financial Statements - Continued December 30, 2022 (in thousands, except per share amounts) The Company paid $ 1,980 in debt issuance costs in connection with the 2022 Credit Facility, which were allocated to the line of credit and amortized on a straight-line basis over the term of the facility. Additionally, the Company had $ 4,473 of remaining unamortized debt issuance costs related to the Prior Credit Facility. The Company expensed $ 1,927 of the remaining unamortized debt issuance costs and allocated $ 2,546 to the 2022 Credit Facility. The Company may borrow, prepay and re-borrow principal under the 2022 Credit Facility during its term. Advances under the 2022 Credit Facility can be either Adjusted Term Secured Overnight Financing Rate ("SOFR") loans or base rate loans. SOFR rate revolving loans bear interest on the outstanding principal amount thereof for each interest period at a rate per annum equal to Term SOFR for such calculation plus 0.10 % plus a margin ranging from 1.00 % to 2.00 %. Base rate revolving loans bear interest on the outstanding principal amount thereof at a rate per annum equal to the highest of (i) Federal Funds Rate plus 0.50 %, (ii) the rate of interest in effect for such day as publicly announced from time to time by the administrative agent as its “prime rate”, and (iii) Adjusted Term SOFR rate for a one-month tenor plus 1.00 %, subject to the interest rate floors set forth therein, plus a margin ranging from 0.00 % to 1.00 %. At December 30, 2022, the one-month SOFR and three-month SOFR rates were 4.06 % and 3.62 %, respectively. At December 30, 2022, our weighted-average interest rate on outstanding borrowing was 4.38 %. The 2022 Credit Facility is secured by substantially all of the Company’s assets, restricts the Company's ability to make certain payments and engage in certain transactions, and requires that the Company satisfy customary financial ratios. The Company was in compliance with the covenants as of December 30, 2022. The following table summarizes the line of credit under the 2022 Credit Facility and the Prior Credit Facility: December 30, December 31, 2022 2021 Amount outstanding $ 200,000 $ — Standby letters of credit $ — $ 15,000 Available borrowing capacity $ 450,000 $ 235,000 Total borrowing capacity $ 650,000 $ 250,000 Maturity date April 5, 2027 March 11, 2025 11. Derivatives and Hedging The Company is exposed to certain risks relating to its ongoing business operations. The primary risk managed by using derivative instruments is interest rate risk. The Company utilizes interest rate swaps to limit its exposure to interest rate risk by converting a portion of its floating-rate debt to a fixed-rate basis, thus reducing the impact of interest rate changes on future interest expense. Interest rate swaps involve the receipt of floating-rate amounts in exchange for fixed-rate interest payments based on the three-month Term SOFR over the lives of the agreements without an exchange of the underlying principal amounts. As of December 30, 2022 and December 31, 2021, the Company had the following interest rate swap contracts: December 30, December 31, 2022 2021 Effective Date Termination Date Notional Amount Unrealized Gain in AOCI Unrealized Gain in AOCI September 2, 2020 June 11, 2021 $ 200,000 $ 189 $ 276 July 2, 2021 April 5, 2022 $ 200,000 9,180 3,583 April 5, 2022 April 5, 2027 $ 100,000 5,087 — Total $ 14,456 $ 3,859 86 Table of Contents FOX FACTORY HOLDING CORP. Notes to Consolidated Financial Statements - Continued December 30, 2022 (in thousands, except per share amounts) On June 11, 2021, the Company terminated its existing swap agreement (the "2020 Swap Agreement") and entered into an interest rate swap agreement (the "2021 Swap Agreement") with a notional amount of $ 200,000 . On April 5, 2022, the Company terminated its 2021 Swap Agreement and entered into a new interest rate swap agreement (the "2022 Swap Agreement") with a notional amount of $ 100,000 . The terminated 2020 and 2021 Swap Agreements resulted in unrealized gains of $ 324 and $ 12,270 , respectively, at the termination dates that will continue to be accounted for in accumulated other comprehensive income and amortized into earnings over the term of the associated debt instrument. The 2022 Swap Agreement has a maturity date of April 5, 2027 and is indexed to a three-month Term SOFR (as defined in the 2022 Swap Agreement). The 2022 Swap Agreement met the criteria as a cash flow hedge under ASC 815, Derivatives and Hedging ("ASC 815"), and is recorded to other assets or other liabilities on the Consolidated Balance Sheets. Refer to Note 16. Fair Value Measurements and Financial Instruments for additional information on determining the fair value. The unrealized gains or losses, after tax, will be recorded in accumulated other comprehensive income, a component of equity, and are expected to be reclassified into interest expense on the Consolidated Statements of Income when the forecasted transactions affect earnings. As required under ASC 815, the interest rate swap contracts’ effectiveness will be assessed on a quarterly basis using a quantitative regression analysis. The gains and losses, net of tax, related to the derivative instruments designated as cash flow hedges recognized in accumulated other comprehensive income for the years ended December 30, 2022 and December 31, 2021 were gains of $ 14,824 and $ 3,645 , respectively. The gains and losses, related to the effective portion of derivative instruments designated as cash flow hedges recognized in interest expense for the years ended December 30, 2022, December 31, 2021 and January 1, 2021 were a gain of $ 2,750 and losses of $ 600 and $ 115 , respectively. Over the next twelve months, the Company expects to recognize $ 3,256 of the $ 14,456 of unrealized gains currently included in accumulated other comprehensive income as an offset to interest expense. 12. Commitments and Contingent Liabilities Indemnification Agreements - In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, services to be provided by the Company or intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with directors and certain officers and employees that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. While the outcome of these matters cannot be predicted with certainty, the Company does not believe that the outcome of any claims under indemnification arrangements will have a material effect on the Company’s results of operations, financial position or liquidity. Legal Proceedings - From time to time, the Company is involved in legal proceedings that arise in the ordinary course of business. Although the Company cannot assure the outcome of any such legal proceedings, based on information currently available, management does not believe that the ultimate resolution of any pending matters, either individually or in the aggregate, will have a material adverse effect on the Company's financial condition, results of operations or cash flows. Other Commitments - On November 30, 2017, the Company through FF US Holding Corp., acquired the assets of Flagship, Inc. d/b/a Tuscany and issued a 20% interest in FF US Holding Corp. to Flagship, Inc. A stockholders' agreement with Flagship, Inc. provided the Company with a call option (the "Call Option") to acquire the remaining 20 % of FF US Holding Corp. at any time from November 30, 2019 through November 30, 2024 at a value that approximates fair market value. On July 22, 2020, the Company exercised the Call Option and, pursuant to a stock purchase agreement with Flagship, Inc., the Company purchased the remaining 20 % interest for $ 24,975 payable in a combination of stock and cash. The cash portion was settled in quarterly installment payments beginning in July 2020 through July 2022, which amounted to $ 6,556 , $ 4,550 and $ 2,700 in 2020, 2021 and 2022, respectively. The Company had no remaining liability as of December 30, 2022. The stock portion of 136 shares were released from escrow on a quarterly basis starting January 2021 through July 2022. The Company released 58 and 78 shares during the years ended December 30, 2022 and December 31, 2021, respectively. The Company had no remaining shares to be released as of December 30, 2022. The exercise of the Call Option effectively canceled the put option held by Flagship, Inc. 87 Table of Contents FOX FACTORY HOLDING CORP. Notes to Consolidated Financial Statements - Continued December 30, 2022 (in thousands, except per share amounts) 13. Stockholders' Equity Secondary Stock Offering In June 2020, the Company completed a secondary offering whereby it sold 2,760 shares of its common stock at a price of $ 76.00 per share for gross proceeds of $ 209,760 . The net proceeds to the Company after underwriters' discounts and commissions of $ 11,015 and $ 511 of offering costs was $ 198,233 . The total shares sold included 360 shares that were sold in connection with the underwriters' option to purchase additional shares. This offering was made pursuant to the Company's registration statement on Form S-3. The Company did not incur any expenses related to secondary offerings during the fiscal years ended December 30, 2022 and December 31, 2021. Equity Incentive Plans The Company has outstanding awards under the following equity incentive plans: the 2008 Stock Option Plan (the "2008 Plan"), the 2008 Non-Statutory Stock Option Plan (the "2008 Non-Statutory Plan") and the 2013 Omnibus Plan (the "2013 Plan"). On February 23, 2022, the Board of Directors, upon recommendation of the Compensation Committee approved the 2022 Omnibus Plan (the "2022 Plan"), which replaced the 2013 Plan. All remaining available shares under the 2013 Plan were rolled into the 2022 Plan and made available for issuance. No further awards will be granted pursuant to the 2008 Plan, the 2008 Non-Statutory Plan. Under the 2022 Plan, the Company has the ability to issue incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, RSUs, performance units and/or performance shares. The equity incentive plans are administered by the Compensation Committee of the Board of Directors of the Company, which has the authority to determine the type of incentive award, as well as the terms and conditions of the awards. Options granted under the plans have vesting periods ranging from one to ten years and expire no later than 10 years from the date of grant. RSUs generally vest over a three to four-year period with equal annual installments beginning at the end of one year and the remaining vesting annually thereafter. In addition to time-based vesting criteria, certain of our RSUs include performance-based vesting criteria. As of December 30, 2022, there were 4,889 shares reserved for issuance under the Company's equity incentive plans and 4,463 shares available for grant under the 2022 Plan. The Company generally issues new shares in connection with awards under its equity incentive plans. Stock-Based Compensation Compensation expense related to the Company's share-based awards for the fiscal years ended December 30, 2022, December 31, 2021, and January 1, 2021 was $ 16,351 , $ 13,914 , and $ 8,618 , respectively, all of which related to RSUs. No compensation expense related to stock options was incurred during the fiscal years ended December 30, 2022, December 31, 2021, and January 1, 2021. The following table summarizes the allocation of stock-based compensation in the accompanying consolidated statements of income: For the fiscal years ended December 30 December 31 January 1 2022 2021 2021 Cost of sales $ 957 $ 710 $ 625 Sales and marketing 924 803 635 Research and development 946 944 788 General and administrative 13,524 11,457 6,570 Total $ 16,351 $ 13,914 $ 8,618 As of January 1, 2021, $ 421 of stock-based compensation expense related to our executive bonus plan was included in Accrued Expenses on the Consolidated Balance Sheets. This amount was recognized as additional paid in capital during the year ended December 31, 2021 upon the issuance of the underlying restricted stock units. Stock-based compensation expense capitalized to inventory was not material for the years ended December 30, 2022, December 31, 2021 and January 1, 2021. 88 Table of Contents FOX FACTORY HOLDING CORP. Notes to Consolidated Financial Statements - Continued December 30, 2022 (in thousands, except per share amounts) Restricted Stock Units The Company grants both time-based and performance-based stock awards, which also include a time-based vesting feature. Compensation expense for time-based stock awards is measured at the grant date based on the closing market price of the Company's common stock, and recognized ratably over the vesting period. For performance-based stock awards, compensation expense is measured based on estimates of the number of shares ultimately expected to vest at each reporting date based on management’s expectations regarding the relevant performance criteria. The recognition of compensation expense associated with performance-based stock awards requires defined criteria for assessing achievement and judgment in assessing the probability of meeting the performance goals. The following table summarizes RSU activity: Unvested RSUs Number of shares outstanding Weighted-average grant date fair value Unvested at January 3, 2020 427 $ 44.98 Granted 260 47.46 Canceled ( 13 ) 48.51 Vested ( 224 ) 37.34 Unvested at January 1, 2021 450 50.12 Granted 89 149.08 Canceled ( 24 ) 56.21 Vested ( 177 ) 49.17 Unvested at December 31, 2021 338 76.30 Granted 142 95.34 Canceled ( 17 ) 97.00 Vested ( 166 ) 73.14 Unvested at December 30, 2022 297 $ 87.05 The fair value of vested RSUs was $ 15,140 , $ 27,213 and $ 15,625 for the years ended December 30, 2022, December 31, 2021 and January 1, 2021, respectively. As of December 30, 2022, the Company had approximately $ 17,591 of unrecognized stock-based compensation expense related to RSUs, which will be recognized over the remaining weighted-average vesting period of approximately 1.76 years. Performance Stock Units During the year ended December 30, 2022, the Company issued performance share units (“PSUs”) to certain executives that represent shares potentially issuable in the future. Issuance is based upon the Company's performance, over a 2 - 3 year performance period, on certain measures including return on invested capital and free cash flow. The PSUs vest only upon the achievement of the applicable performance goals for the performance period, and, depending on the actual achievement on the performance goals, the grantee may earn between 0 % and 200 % of the target PSUs. The fair value of performance share units is calculated based on the stock price on the date of grant. 89 Table of Contents FOX FACTORY HOLDING CORP. Notes to Consolidated Financial Statements - Continued December 30, 2022 (in thousands, except per share amounts) The following table summarizes the activity for the Company's unvested PSUs for the year ended December 30, 2022: Unvested PSUs Number of shares outstanding Weighted-average grant date fair value Unvested at January 1, 2021 — $ — Granted 29,000 141.46 Unvested at December 31, 2021 29,000 141.46 Granted 37,000 120.90 Canceled ( 4,000 ) 126.73 Vested ( 14,000 ) 141.46 Unvested at December 30, 2022 48,000 $ 126.69 The stock-based compensation expense recognized each period is dependent upon our estimate of the number of shares that will ultimately vest based on the achievement of certain performance conditions. Future stock-based compensation expense for unvested performance-based awards could reach a maximum of $ 7,178 assuming achievement at the maximum level. The unrecognized stock-based compensation expense is expected to be recognized over a weighted average period of 1.73 years. Stock Options The following table summarizes stock option activity: Number of shares outstanding Weighted-average exercise price Weighted-average remaining contractual life (years) Aggregate intrinsic value Balance at January 3, 2020 431 $ 5.27 2 $ 27,814 Options exercised ( 206 ) 5.16 19,724 Balance at January 1, 2021 225 5.37 2 22,593 Options exercised ( 192 ) 5.41 25,751 Balance at December 31, 2021 33 5.16 1 5,389 Options exercised ( 33 ) 5.16 2,470 Balance at December 30, 2022 — — 0 — Options vested and expected to vest - December 30, 2022 — — 0 — Options exercisable - December 30, 2022 — $ — 0 $ — Aggregate intrinsic value represents the difference between the closing price of the Company's common stock on NASDAQ and the exercise price of outstanding, in-the-money options. No options vested during the year ended December 30, 2022. As of December 30, 2022, stock-based compensation expense related to stock options has been fully recognized. During the years ended December 30, 2022, December 31, 2021 and January 1, 2021, 33 , 192 , and 206 shares of common stock, respectively, were issued due to the exercise of stock options, resulting in proceeds to the Company of approximately $ 169 , $ 1,042 , and $ 1,063 , respectively. As of December 30, 2022, stock-based compensation expense related to stock options has been fully recognized. 90 Table of Contents FOX FACTORY HOLDING CORP. Notes to Consolidated Financial Statements - Continued December 30, 2022 (in thousands, except per share amounts) 14. Earnings Per Share Basic earnings per share ("EPS") amounts are computed by dividing net income attributable to Fox Factory Holding Corp. stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted EPS amounts are computed by dividing net income for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding during the period. Potentially dilutive common shares include shares issuable upon the exercise of outstanding stock options and vesting of restricted stock units, which are reflected in diluted earnings per share by application of the treasury stock method. The following table presents the calculation of basic and diluted earnings per share: For the fiscal years ended December 30 December 31 January 1 2022 2021 2021 Net income attributable to FOX stockholders $ 205,278 $ 163,818 $ 90,674 Weighted average shares used to compute basic earnings per share 42,232 42,022 40,229 Dilutive effect of employee stock plans 152 344 572 Weighted average shares used to compute diluted earnings per share 42,384 42,366 40,801 Earnings per share: Basic $ 4.86 $ 3.90 $ 2.25 Diluted $ 4.84 $ 3.87 $ 2.22 The Company excluded 20 shares from the calculation of diluted earnings per share for the year ended December 30, 2022 as these shares would have been antidilutive. No potentially dilutive shares were excluded from the calculation of diluted earnings per share for the years ended December 31, 2021 and January 1, 2021, respectively. 15. Income Taxes Provision for Income Taxes The components of income tax expense are as follows: For the fiscal years ended December 30 December 31 January 1 2022 2021 2021 Current: Federal $ 33,622 $ 30,698 $ 18,061 State 4,372 ( 138 ) 1,590 Foreign 11,964 8,617 8,043 Total current 49,958 39,177 27,694 Deferred: Federal ( 17,447 ) ( 14,447 ) ( 14,589 ) State ( 2,837 ) ( 23 ) 373 Foreign ( 1,188 ) ( 144 ) ( 694 ) Total deferred ( 21,472 ) ( 14,614 ) ( 14,910 ) Provision for income taxes $ 28,486 $ 24,563 $ 12,784 91 Table of Contents FOX FACTORY HOLDING CORP. Notes to Consolidated Financial Statements - Continued December 30, 2022 (in thousands, except per share amounts) The Company's income before provision for income taxes was subject to taxes in the following jurisdictions for the following periods: For the fiscal years ended December 30 December 31 January 1 2022 2021 2021 United States $ 197,640 $ 149,238 $ 74,777 Foreign 36,124 39,143 29,753 Total income before provision for income taxes $ 233,764 $ 188,381 $ 104,530 The following table presents a reconciliation of the statutory federal rate and the Company’s effective tax rate for the periods presented: For the fiscal years ended December 30 December 31 January 1 2022 2021 2021 Tax at federal statutory rate 21.0 % 21.0 % 21.0 % Foreign derived income benefit ( 6.6 ) ( 5.8 ) ( 5.0 ) Valuation allowance on foreign tax credits ( 3.8 ) 1.1 0.7 Research and development tax credit ( 2.9 ) ( 1.1 ) ( 0.9 ) Foreign withholding taxes, net of foreign tax credits 1.1 — — Executive compensation deduction limitation 0.8 1.2 0.8 State taxes, net of federal benefit 0.6 1.9 1.8 Stock-based compensation ( 0.5 ) ( 5.0 ) ( 5.9 ) Change in liability for unrecognized tax benefits — ( 1.4 ) 0.6 Other 2.5 1.1 ( 0.9 ) Effective tax rate 12.2 % 13.0 % 12.2 % 92 Table of Contents FOX FACTORY HOLDING CORP. Notes to Consolidated Financial Statements - Continued December 30, 2022 (in thousands, except per share amounts) Deferred Income Taxes December 30, December 31, 2022 2021 Deferred tax assets: Foreign tax credits, including amounts associated with accrued charges $ 47,779 $ 48,329 Inventory 8,222 5,452 Accrued liabilities 7,146 9,319 Lease liability 6,077 3,646 Capitalized research & development 16,502 5,880 Stock-based compensation — 2,254 Research and development tax credits 3,963 2,721 Other 4,586 625 Total deferred tax asset 94,275 78,226 Valuation allowance ( 280 ) ( 9,223 ) Net deferred tax asset 93,995 69,003 Deferred tax liabilities: Intangible assets ( 23,078 ) ( 23,357 ) Depreciation ( 5,583 ) ( 5,711 ) Lease right-of-use asset ( 6,232 ) ( 3,783 ) Accrued withholding tax on unremitted foreign dividends — ( 854 ) Stock-based compensation ( 121 ) — Other ( 1,642 ) ( 300 ) Total deferred tax liability ( 36,656 ) ( 34,005 ) Net deferred tax asset $ 57,339 $ 34,998 As of December 30, 2022, the Company had foreign tax credits of $ 47,779 that begin to expire in 2026, unless previously utilized. As of December 30, 2022, the Company assessed the realizability of deferred tax assets and evaluated the need for a valuation allowance for deferred tax assets for each jurisdiction based on the framework of ASC 740. For the year ended December 30, 2022, the valuation allowance decreased by $ 9,161 . U.S. Tax Regulations proposed by the U.S. Treasury and Internal Revenue Service on November 22, 2022, which were early adopted by the Company, provided clarification to earlier guidance and resulted in the Company's ability to utilize certain foreign tax credits related to royalties. As a result, the Company determined a valuation allowance was not needed. Other components of the valuation allowance were not significant. It is reasonably possible that the Company could record a material adjustment to the valuation allowance in the next twelve months. 93 Table of Contents FOX FACTORY HOLDING CORP. Notes to Consolidated Financial Statements - Continued December 30, 2022 (in thousands, except per share amounts) Unrecognized Tax Benefits For the fiscal years ended December 30 December 31 January 1 2022 2021 2021 Balance - beginning of period $ 228 $ 3,150 $ 2,300 Increase related to current year tax positions — — 664 Increase related to prior year tax positions — — 187 Decrease related to prior year tax positions ( 109 ) ( 2,923 ) — Increase (decrease) due to expiration of statute of limitations — 1 ( 1 ) Balance - end of period $ 119 $ 228 $ 3,150 As of December 30, 2022, the Company had $ 119 of unrecognized tax benefits. The Company regularly engages in discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. The Company's 2019 and forward federal tax returns, state tax returns from 2017 and forward, and foreign tax returns from 2019 and forward are subject to examination by tax authorities. 16. Fair Value Measurements and Financial Instruments The FASB's Accounting Standards Codification 820, "Fair Value Measurements and Disclosures" requires the valuation of assets and liabilities required or permitted to be either recorded or disclosed at fair value based on hierarchy of available inputs as follows: Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2: Quoted prices for similar assets and liabilities in active markets, quoted prices for identical assets and liabilities in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). The following table presents the Company's hierarchy for its assets, liabilities and redeemable non-controlling interest measured at fair value on a recurring basis as of the following periods: December 30, 2022 December 31, 2021 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets: Interest Rate Swap $ — $ 5,087 $ — $ 5,087 $ — $ 3,583 $ — $ 3,583 Total assets measured at fair value $ — $ 5,087 $ — $ 5,087 $ — $ 3,583 $ — $ 3,583 Liabilities: Prior Credit Facility $ — $ — $ — $ — $ — $ 378,453 $ — $ 378,453 Total liabilities measured at fair value $ — $ — $ — $ — $ — $ 378,453 $ — $ 378,453 There were no transfers of assets or liabilities between Level 1, Level 2 and Level 3 categories of the fair value hierarchy during the years ended December 30, 2022, and December 31, 2021. As of December 31, 2021, the carrying amount of the principal under the Company’s Prior Credit Facility approximated fair value because it had a variable interest rate that reflected market changes in interest rates and changes in the Company’s net leverage ratio. The Prior Credit Facility was terminated on April 5, 2022 and replaced with the revolving 2022 Credit Facility. 94 Table of Contents FOX FACTORY HOLDING CORP. Notes to Consolidated Financial Statements - Continued December 30, 2022 (in thousands, except per share amounts) On June 11, 2021, the Company entered into the 2021 Swap Agreement to mitigate the cash flow risk associated with changes in interest rates on its variable rate debt. On April 5, 2022, the Company terminated its 2021 Swap Agreement and entered into the 2022 Swap Agreement. Refer to Note 11. Derivatives and Hedging for additional details of the agreement. In accordance with ASC 815, an interest rate swap contract is recognized as an asset or liability on the Consolidated Balance Sheets and is measured at fair value. The fair value was calculated utilizing Level 2 inputs. 17. Retirement Plan The Company established a 401(k) plan to provide tax deferred salary deductions for all eligible employees. Participants may make voluntary contributions to the 401(k) plan, limited by certain IRS restrictions. The Company made matching contributions of $ 3,649 , $ 2,655 , and $ 2,078 for each of the years ended December 30, 2022, December 31, 2021 and January 1, 2021, respectively. 18. Acquisitions On March 11, 2020, the Company, through Fox Factory, Inc., acquired 100% of the issued and outstanding stock of SCA from Southern Rocky Holdings, LLC for $ 331,853 , net of cash acquired and exclusive of vehicle inventory. SCA is a leading OEM authorized specialty vehicle manufacturer for light duty trucks and SUVs with headquarters in Trussville, Alabama. SCA operates under three aftermarket brands: SCA Performance, Rocky Ridge Trucks, and Rocky Mountain Truckworks. This transaction was accounted for as a business combination. The Company also agreed to an additional $ 10,326 of contingent retention incentives for key SCA management of which $ 9,036 is cash and $ 1,290 is stock, to be held in escrow and payable over two years from the acquisition date. The Company recognized $ 955 , $ 5,160 and $ 4,211 in costs associated with such retention incentives during the years ended December 30, 2022, December 31, 2021 and January 1, 2021, respectively. As of December 30, 2022, all contingent retention incentives had been recognized. The Company’s allocation of the purchase price to the net tangible and intangible assets acquired and liabilities assumed is as follows: Fair market values Tangible assets acquired $ 28,678 Liabilities assumed ( 32,479 ) Intangible assets 139,900 Goodwill 195,754 Total $ 331,853 The Company incurred $ 10,582 of acquisition costs in conjunction with the SCA acquisition, including $ 1,750 of transaction compensation during the year ended January 1, 2021 and $ 602 of transaction costs during the year ended January 3, 2020. These costs are classified as general and administrative expenses in the accompanying consolidated statements of income. Additional debt issuance costs of $ 6,622 were incurred in association with financing the transaction. Refer to Note 10. Debt for further details. The values assigned to the identifiable intangible assets were determined by discounting the estimated future cash flows associated with these assets to their present value. The goodwill of $ 195,754 reflects the strategic fit of SCA with the Company’s operations. The Company will amortize the acquired customer relationships assets over their expected useful lives of 5 - 10 years. Trademarks, brand names and goodwill are expected to have an indefinite life, and will be subject to impairment testing. The goodwill is not deductible for income tax purposes. SCA previously purchased intangibles in asset acquisitions with a remaining net tax basis approximating $ 77,989 , which the Company may deduct for income tax purposes. 95 Table of Contents FOX FACTORY HOLDING CORP. Notes to Consolidated Financial Statements - Continued December 30, 2022 (in thousands, except per share amounts) On May 21, 2021, the Company, through its wholly owned subsidiary, Fox Factory Australia Pty Ltd., acquired substantially all the assets of Sola Sport Pty Ltd. for $ 486 . The acquisition was not material to the Company's financial statements. On May 25, 2021, the Company, through its wholly owned subsidiary, SCA, acquired 100 % of the issued and outstanding stock of Manifest Joy LLC, d/b/a Outside Van ("Outside Van"), a custom van conversion company. The total purchase price of $ 15,275 , net of cash acquired, was allocated to the net liabilities assumed of $ 1,057 , identifiable intangibles assets of $ 5,560 and goodwill acquired of $ 10,772 based on their respective fair values as of May 25, 2021, with the excess purchase price allocated to goodwill. The Company will amortize the acquired customer relationship and trade name assets over their expected useful lives of 1 and 10 years, respectively. This purchase was accounted for as a business combination and was not material to the Company's financial statements. On December 30, 2021, the Company, through its wholly owned subsidiary, Shock Therapy Suspension, Inc., acquired substantially all the assets of Shock Therapy LLC ("STS"), for $ 36,834 , net of cash acquired. STS is a premier suspension tuning company in the off-road industry, with headquarters in Phoenix, Arizona. This purchase price of STS is allocated to the net assets assumed of $ 5,244 , identifiable intangible assets of $ 7,086 and goodwill acquired of $ 24,504 , based on their respective fair values as of December 30, 2021. The Company will amortize the acquired non-compete and trade name assets over their expected useful lives of 5 and 10 years, respectively. The acquired goodwill represents the value of combining operations of STS and the Company, and is expected to be deductible for tax purposes. This purchase was accounted for as a business combination and was not material to the Company's financial statements. 19. Subsequent Events On February 17, 2023 the Company entered into a Securities Purchase Agreement with CWH Holdco, LLC (“CWH”), CWH Blocker Corp., (“Blocker”), Thompson Street Capital Partners V, L.P., and each other member of CWH to purchase all of the outstanding equity of Blocker, and thereafter Blocker will acquire all of the outstanding equity interest of CWH for $ 131,600 . CWH is the parent company of Custom Wheel House, LLC ("Custom Wheel House"). The transaction will be financed through a combination of cash on hand and the Company's existing 2022 Credit Facility, and is expected to close in March 2023, subject to customary closing conditions. The acquisition is not considered significant to the Company's financial results. 96